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					           Forwards and Futures

      Go To Bob Jensen’s Flow Chart
 http://www.trinity.edu/rjensen/acct5341/speakers/133flow.htm




3-1
             TRANSACTION MARKETS


      •   Spot or Cash: Immediate exchange of
                        property for payment

      •   Forward:      Later exchange of
                        property for payment, t
                        terms fixed today

      •   Futures:      Like forwards, but...


3-2
              FORWARD CONTRACTS


      •   Price setting mechanisms for deferred
          value dates
      •   Totally flexible in terms of timing and size
          of transactions
      •   Negotiated on a principal-to-principal
          basis
      •   Introduce credit risk exposure to
          counterparties for profitable positions

3-3
             FUTURES CONTRACTS

      • Price setting mechanisms for deferred
        value dates
      • Designed with specific value dates and
        fixed contract sizes
      • Exchange traded, with bids and offers
        provided by exchange members
      • Daily cash settlements insure against the
        risk of counter-party defaults

3-4
                  FINANCIAL INTEGRITY

      •   Variation Margin:       One day’s gain or loss
                                  of the futures position
             (#contracts  price change  multiplier)

      •   Initial Margin:        Good faith deposit or
                                 collateral

      •   Maintenance Level:     Minimum below which
                                 account cannot fall


3-5
      CUSTOMER PERFORMANCE BONDS
           Alternative Qualifying Instruments


      •   U.S. currency and Government securities
      •   Bank letters of credit
      •   GNMA pass-throughs
      •   Selected Brady bonds
      •   Selected sovereign securities
      •   NYSE, AMEX, S&P500 and S&PMidCap
          stocks
      •   Selected mutual funds

3-6
          Forecasted Transactions Versus
               Firm Commitments

      Forecasted transactions that are highly probable
        with a known notional and cash flow risk from
        an unknown spot price or rate

      Firm commitments that are contracted with a
        specified notional and transaction price that
        eliminates cash flow risk but creates value risk
        equal to the difference between spot versus
        contracted price or rate

3-7
      Accounting for Forecasted Transactions
           Versus Firm Commitments

      Forecasted transactions are not booked or even
        disclosed under present accounting standards.

      Firm commitments (more generally known as
        purchase commitments in the case of
        purchases) are to be disclosed but are not to be
        booked unless a significant loss anticipated.
        Then conservatism in dictates booking an
        anticipated loss reserve that is much like an
        allowance for warranty or bad debt expense.

3-8
      Examples 1 and 4 FAS 133 Appendix B
         Fair Value vs. Cash Flow Hedges




      See 133ex01a.xls at
        http://www.cs.trinity.edu/~rjensen/




3-9
          Delta Ratio Effectiveness Testing
             80%<Delta<125% Bounds

                       Paragraph 146 in IAS 39
       A hedge is normally regarded as highly effective if, at
         inception and throughout the life of the hedge, the
         enterprise can expect changes in the fair value or cash
         flows of the hedged item to be almost fully offset by
         the changes in the fair value or cash flows of the
         hedging instrument, and actual results are within a
         range of 80 per cent to 125 per cent. For example, if
         the loss on the hedging instrument is 120 and the gain
         on the cash instrument is 100, offset can be measured
         by 120/100, which is 120 per cent, or by 100/120,
         which is 83 per cent. The enterprise will conclude
         that the hedge is highly effective.

3-10
       Example 4 from FAS 133 Paragraph 128
          With 100% Delta Effectiveness

Forecasted Transaction     Inventory        Cash Flow
               Entry         Book             Hedge
 Date          Value        Value             Value
Jan. 01      $1,000,000       $0                $0
Jan. 31      $1,025,000       $0             $25,000

         $25,000 = Change in Hedged Item Value
         $25,000 = Change in Hedge Contract Value
           Delta = 1.00 or 100%



3-11
       Example 4 from FAS 133 Paragraph 128
          With 100% Delta Effectiveness

       Forecasted Transaction           Inventory          Cash Flow
                     Entry               Book               Hedge
        Date          Value              Value              Value
       Jan. 01      $1,000,000             $0                  $0
       Jan. 31      $1,025,000             $0               $25,000
                                                     Debit           Credit
       Jan. 31       Forward Contract               25,000
                     P&L                                 0
                         OCI                                         25,000
       For cash flow hedges, adjust hedging derivative to fair value and offset to
          OCI to the extent of hedge effectiveness.


3-12
       Example 4 from FAS 133 Paragraph 128
           With 90% Delta Effectiveness

Forecasted Transaction     Inventory        Cash Flow
               Entry         Book             Hedge
 Date          Value        Value             Value
Jan. 01      $1,000,000       $0                $0
Jan. 31      $1,025,000       $0             $22,500

         $25,000 = Change in Hedged Item Value
         $22,500 = Change in Hedge Contract Value
           Delta = 0.90 or 90%



3-13
       Example 4 from FAS 133 Paragraph 128
           With 90% Delta Effectiveness

       Forecasted Transaction          Inventory           Cash Flow
                     Entry              Book                Hedge
        Date          Value             Value               Value
       Jan. 01      $1,000,000           $0                     $0
       Jan. 31      $1,025,000           $0                $22,500
                                        Debit                       Credit
       Jan. 31        Forward Contract 22,500
                      P&L               2,500
                         OCI                                        25,000
        Hedge accounting is allowed only to the degree of effectiveness if Delta is
          within 80%-125% range.

3-14
       Example 4 from FAS 133 Paragraph 128
           With 75% Delta Effectiveness

Forecasted Transaction     Inventory        Cash Flow
               Entry         Book             Hedge
 Date          Value        Value             Value
Jan. 01      $1,000,000       $0                $0
Jan. 31      $1,025,000       $0             $18,750

         $25,000 = Change in Hedged Item Value
         $18,750 = Change in Hedge Contract Value
           Delta = 0.75 or 75%



3-15
       Example 4 from FAS 133 Paragraph 128
           With 75% Delta Effectiveness

       Forecasted Transaction        Inventory          Cash Flow
                     Entry            Book               Hedge
        Date          Value           Value              Value
       Jan. 01      $1,000,000          $0                   $0
       Jan. 31      $1,025,000          $0              $18,750
                                       Debit                    Credit
       Jan. 31       Forward Contract 18,750
                       P&L                                       18,750
                       OCI                                            0
       When the hedge effectiveness lies outside the 80%-125% range, hedge
         accounting is not allowed.


3-16
            Example 4 Modified As Follows


       Forecasted Transaction         Inventory         Cash Flow
                      Entry             Book              Hedge
        Date           Value           Value              Value
       Jan. 01       $1,000,000         $0                    $0
       Jan. 31       $1,025,000         $0               $18,750
       Feb. 28       $1,025,000         $0               $25,000
       Mar. 31       $1,050,000      $1,050,000          $50,000

       Suppose the inventory is purchased on March 31.

       Suppose the inventory is sold on April 30 for $1,100,000.

3-17
                   Example 4 Modified
       February 28 Adjustment of Forward Contract

          Forecasted Transaction           Inventory          Cash Flow
                         Entry               Book               Hedge
           Date           Value             Value               Value
          Jan. 01      $1,000,000             $0                    $0
          Jan. 31      $1,025,000             $0               $18,750
          Feb. 28      $1,025,000             $0               $25,000
                                    Debit Credit                               Bal.
          Feb. 28 Forward Contract 6,250                                     25,000
                      P&L          18,750                                         0
                      OCI                 25,000                             25,000
          Hedge effectiveness can be initially designated as being tested on a
             cumulative basis.


3-18
                 Example 4 Modified
       March 31 Adjustment of Forward Contract

         Forecasted Transaction       Inventory           Cash Flow
                        Entry          Book                 Hedge
          Date          Value          Value                Value
         Jan. 01       $1,000,000         $0                    $0
         Feb. 28      $1,025,000          $0               $25,000
         Mar. 31      $1,050,000     $1,050,000            $50,000
                                               Debit Credit             Bal.
         Mar. 31 Forward Contract              25,000                 50,000
                     P&L                                   0               0
                     OCI                              25,000          50,000
         The forward contract is settled for $50,000 in cash to offset the
            increase to $1,050,000 of the hedged item’s price. FAS 133 says
            carry forward OCI balance until inventory is sold. IAS 39 has an
            OCI basis adjustment on March 31, unlike FAS 133.


3-19
               Example 4 Modified
          March 31 Purchase of Inventory

                              Debit Credit         Bal.
 Mar. 31 Cash               50,000               50,000
           Forward contract        50,000           0

 Mar. 31 Inventory         1,050,000          1,050,000
             Cash                  1,050,000 (1,000,000)

 Under IAS 39, there will also be an entry to close the
   $50,000 in OCI to P&L. Under FAS 133, there will be no
   such basis adjustment until the inventory is sold.


3-20
       Example 4 from FAS 133 Paragraph 128
          April 30 Basis Adjustment of OCI

       Forecasted Transaction         Inventory           Cash Flow
                       Sales            Book                Hedge
        Date          Amount            Value              Value
       Jan. 01              $0          $0                    $0
       Apr. 30      $1,100,000        $1,050,000              $0
                                              Debit       Credit     Bal.
       Apr. 30       OCI                     50,000                    0
                           P&L                            50,000 (50,000)

       The sales profit of $1.1 million less $1.05 million is $50,000 without
          hedging. With a cash flow hedge, retained earnings is increased by
          another $50,000 that locked in inventory value at $1 million.


3-21
             Basis Adjustment Alternatives


       The carrying value of a hedging offset account (OCI, Firm
         Commitment, or Balance Sheet Item) may be written off
         prematurely whenever the hedge becomes severely
         ineffective.


       Under IAS 39, the carrying value of an effective hedge is written
         off when the hedge expires or is dedesignated. See
         Paragraphs 162 and 163 of IAS 39.

       Under FAS 133, the carrying value of an effective hedge is
         carried forward until the ultimate disposition of the hedged
         item (e.g. inventory sale or depreciation of equipment). See
         Paragraph 31 of FAS 133.

3-22
                  Example 4 Modified
                April 30 Sale of Inventory

                                Debit Credit             Bal.
 Apr. 30 P&L (CGS)           1,050,000              1,000,000
           Inventory                  1,050,000             0

 Apr. 30 Cash                1,100,000                   100,000
              P&L (Sales)                1,100,000      (100,000)
 The sales profit of $1.1 million less $1.05 million is $50,000
   without hedging. With a cash flow hedge, retained earnings
   is increased by another $50,000 that locked in inventory
   value at $1 million.


3-23
          Cash Flow Hedge of a Precious Metal
       or Any Hedged Item to be Carried at Value

Forecasted Transaction         Gold           Cash Flow
               Entry           Book             Hedge
 Date          Value           Value            Value
Jan. 01      $1,000,000         $0                $0
Jan. 31      $1,025,000         $0             $22,500

           $25,000 = Change in Hedged Item Value
           $22,500 = Change in Hedge Contract Value
             Delta = 0.90 or 90%



3-24
          Cash Flow Hedge of a Precious Metal
       or Any Hedged Item to be Carried at Value

         Forecasted Transaction          Gold              Cash Flow
                       Entry             Book                Hedge
          Date         Value             Value               Value
         Jan. 01      $1,000,000          $0                    $0
         Jan. 31      $1,025,000          $0                $22,500
                                                     Debit          Credit
         Jan. 31      Forward Contract              22,500
                          P&L                                       22,500
                          OCI                                            0
         Paragraph 29(d) of FAS 133 prohibits the hedged item to be any item that
            is or will be carried on the books at fair value after acquisition.


3-25
          New Example



       New Example Coming Up




3-26
       Firm Commitment with Contracted Price
           With 100% Delta Effectiveness

Firm Commitment                Inventory         Fair Value
            Entry                Book              Hedge
 Date             Value          Value              Value
Jan. 01         $1,000,000         $0                  $0
Jan. 31           $975,000         $0             $25,000

          -$25,000 = Change in Value of Hedged Item
           $25,000 = Change in Value of Hedge Contract
             Delta = 1.00 = 100%

3-27
       Firm Commitment with Contracted Price
           With 100% Delta Effectiveness

        Firm Commitment                 Inventory            Fair Value
                     Entry               Book                  Hedge
         Date        Value               Value                 Value
        Jan. 01    $1,000,000                $0                    $0
        Jan. 31      $975,000                $0               $25,000
                                         Debit                       Credit
        Jan. 31        Forward contract 25,000
                       P&L                   0
                          Firm commitment                             25,000
        For firm commitments, the fair value hedge is adjusted to full value with
           the effective portion to firm commitment.


3-28
       Firm Commitment with Contracted Price
            With 90% Delta Effectiveness

        Firm Commitment                 Inventory            Fair Value
                    Entry                Book                  Hedge
         Date        Value               Value                 Value
        Jan. 01    $1,000,000                $0                    $0
        Jan. 31      $975,000                $0               $22,500
                                         Debit                        Credit
        Jan. 31        Forward contract 22,500
                       P&L                2,500
                          Firm commitment                            25,000
        Hedge accounting is allowed only to the degree of effectiveness if Delta is
           within 80%-125% range.


3-29
       Firm Commitment with Contracted Price
            With 75% Delta Effectiveness

        Firm Commitment               Inventory        Fair Value
                     Entry              Book             Hedge
         Date        Value              Value            Value
        Jan. 01    $1,000,000               $0               $0
        Jan. 31     $975,000         $975,000          $18,750
                                                   Debit      Credit
        Jan. 31    Forward contract               18,750
                      P&L                                     18,750
                      Firm commitment                              0
          When the hedge effectiveness lies outside the 80%-125% range,
          hedge accounting is not allowed.


3-30
          New Example



       New Example Coming Up




3-31
       Example 1 from FAS 133 Paragraph 105
          With 100% Delta Effectiveness

       Inventory on Hand              Inventory             Fair Value
                      Entry             Book                  Hedge
         Date         Value             Value                  Value
       Jan. 01      $1,000,000        $1,000,000                  $0
       Jan. 31        $975,000          $975,000             $25,000
                                                    Debit        Credit
       Jan. 31      Forward contract               25,000
                    P&L                                 0
                       Inventory                                25,000
       When the hedged item is already booked at historical cost, change
         its accounting to fair value during hedging period.


3-32
       Example 1 from FAS 133 Paragraph 105
           With 90% Delta Effectiveness

       Inventory on Hand               Inventory          Fair Value
                      Entry              Book               Hedge
         Date         Value              Value               Value
       Jan. 01      $1,000,000        $1,000,000                $0
       Jan. 31      $ 975,000         $ 975,000            $22,500
                                                    Debit         Credit
       Jan. 31      Forward contract               22,500
                    P&L                             2,500
                       Inventory                                 25,000
       Hedge accounting is allowed only to the degree of effectiveness if
         Delta is within 80%-125% range.


3-33
       Example 1 from FAS 133 Paragraph 105
           With 75% Delta Effectiveness

       Inventory on Hand             Inventory             Fair Value
                      Entry            Book                  Hedge
        Date           Value            Value                  Value
       Jan. 01       $1,000,000       $1,000,000                   $0
       Jan. 31        $975,000         1,000,000 (no change) $18,750
                                                      Debit    Credit
       Jan. 31 Forward contract                      18,750
                      P&L                                      18,750
          When the hedge effectiveness lies outside the 80%-125% range,
          hedge accounting is not allowed.



3-34
         Cumulative Dollar Offset Hedging
          Actually is More Complicated




       See 133ex07a.xls at
         http://www.cs.trinity.edu/~rjensen/




3-35
        Forward Versus Futures Contracts
          Quotations from Walter Teets
September 7, 2000 email message to Bob Jensen
The error in our case is simply that the futures values (due to changes
in either spot or futures prices) shouldn't be present valued, since
there is daily settling up. But the (change in) values of the anticipated
cash flows of the hedged item should be present valued, because there
is usually no periodic settling of the cash flows associated with the
hedged item. The change to the case is minor; the major point of the
futures case is to show exclusion of the change in the difference between
future and spot price from the determination of effectiveness. Present
valuing the cash flow associated with the anticipated transaction, while
not present valuing the futures (change in) value adds additional
ineffectiveness to the hedging relation.
Walter Teets at Gonzaga University
    3-36
              KPMG Example 4.2
            Cumulative Dollar Offset

 Derivative
              Hedge Item    Period      Cumulative
Hedging Inst.
              Gain (Loss) Change Ratio Change Ratio
 Gain (Loss)

    $100       $ (90)       111%         111%
      25         (21)       119%         113%
     (20)         27         74%         125%
      (5)          4        125%         125%
      25         (22)       114%         123%
  3-37
          New Example



       New Example Coming Up




3-38
                Fair Value FX Hedging
         Example 3 from FAS 133 Paragraph 121

Example 3 illustrates a firm commitment to purchase a machine on May
2 for 270,000Dfl Dutch guilders which exposes the firm to both a fair
value risk and a foreign exchange (FX) risk.
MNO enters a forward contract FX fair value hedge in which this
company enters elects to hedge the 270,000Dfl with equivalent
240,000DM in German marks that it apparently had on hand on February
3.
Although the example hedges in German DM currency, the firm declares
this a fair value hedge of the firm commitment in U.S. dollars.
To the extent of hedge effectiveness, the account Firm Commitment is
used to offset changes in the value of the forward contract during the
   3-39
hedging period.
                  Cash Flow FX Hedging
          Example 10 from FAS 133 Paragraph 165

Example 10 illustrates DEF Company’s hedging of foreign currency risk
of on three expected installments of 1,000,000DM German marks.


As a cash flow hedge, other comprehensive income is used to offset
changes in the value of the hedging forward contract to the extent that
the contract is effective in hedging FX risk.


But the effectiveness tests are very complicated as explained in
Paragraph 169

   3-40
                  Cash Flow FX Hedging
          Example 10 from FAS 133 Paragraph 169

169. As each royalty is earned, DEF recognizes a receivable and royalty income. The
forecasted transaction (the earning of royalty income) has occurred. The receivable is an
asset, not a forecasted transaction, and is not eligible for cash flow hedge accounting.
Nor is it eligible for fair value hedge accounting of the foreign exchange risk because
changes in the receivable's fair value due to exchange rate changes are recognized
immediately in earnings. (paragraph 21(c) prohibits hedge accounting in that
situation.) Consequently, DEF will dedesignate a proportion of the forward contract
corresponding to the earned royalty. As the royalty is recognized in earnings and each
proportion of the derivative is dedesignated, the related derivative gain or loss in
accumulated other comprehensive income is reclassified into earnings. After that date,
any gain or loss on the dedesignated proportion of the derivative and any transaction
loss or gain on the royalty receivable will be recognized in earnings and will
substantially offset each other.


   3-41
        Example 10 in FAS 133 Appendix B
          Cash Flow Hedging of FX Risk


       See 133ex10.doc at
         http://www.cs.trinity.edu/~rjensen/

       See 133ex10a.xls at
         http://www.cs.trinity.edu/~rjensen/


3-42
          FORWARD/FUTURES PRICING


         Spot Price
                               Expense of holding (financing,
       + Cost of Carry         storage, insurance, etc.) less
                               income generated from spot

 Futures/Forward Price


                Basis = +/-(Futures - Spot)

3-43
              BASIS AND CONVERGENCE


            Price

       F =S
        e       e




            F
                O

            S
                O

                                  Time



3-44
               SPECULATIVE TRADES


       •   Outright positions

       •   Basis trades / arbitrage

       •   Calendar spreads

       •   Inter-market spreads
               - TEDs, LEDs, BEDs, NOBs, etc.


3-45
                FUTURES HEDGING
                   Sources of Uncertainty


       •   Rounding error

       •   Cross-market (spread) risk

       •   Mismatching value dates (basis risk)

       •   Timing of variation settlement cashflows




3-46
                     TIMING CONSIDERATION


       Problem: Futures results are realized daily, the
       effect on the exposure occurs in a deferred period

           Daily                          Hedge
           Futures                        Value
           Results                        Date
                     ...
                                                      Time
       0                                    t
       Solution: Tail the hedge to generate the present
       value of the desired price effects

3-47
         Tailing Futures Hedges/Tailing Spreads

            http://www.kawaller.com/pdf/tails.pdf
An untailed hedge ignores the difference between the time
futures gains or losses are realized and the time the price
effects on the associated cash market exposures are
realized. A tailed hedge, on the other hand, takes these
timing considerations into consideration. Put another way,
an untailed hedge ignores the effects of financing costs or
investment returns associated with daily variation margin
settlements of futures contracts; a tailed hedge these
effects.
  3-48
         Tailing Futures Hedges/Tailing Spreads

            http://www.kawaller.com/pdf/tails.pdf
While tailed hedges should be recognized as more perfect
from an economic perspective, untailed hedges have the
advantage of offering the appearance of a better offset
from an accounting point of view when deferral
accounting methods are employed. Moreover, maintaining
a correctly tailed hedge position requires an ongoing
adjustment of the hedge position, while untailed hedges
need no analogous adjustments.

  3-49
            Tailing Futures Hedges/Tailing Spreads

                  http://www.kawaller.com/pdf/tails.pdf
Importantly, the correct number of contracts for this latter case will tend to increase
as the passage of time erodes the difference between present values and future
values.

Ultimately, by the time the hedge value date is reached, the discounted present
value will converge to the $500 amount. Thus, over time the required hedge will
gradually rise to twenty contracts. This second case is an example of a tailed hedge,
where the tail is the number of contracts needed to adjust for this present valuing
effect.




   3-50
          MARK-TO-MARKET VALUATIONS
                     Forward Contracts

                     F(t+1) - F(t)       F(t+1) - F(t)
            MV =            d        =
                      (1+      r)           (1+r)n
                          360

       MV = Market Value
       F(i) = Forward Price at time i
       r=     Zero coupon rate (to forward value date)
       d = Days to the forward value date
       n = Compounding periods to forward value date

3-51
           Complexities of Paragraph 63(c)
                    of FAS 133

       See KPMG 1A Sheet in 133ex07a.xls at
         http://www.cs.trinity.edu/~rjensen/
       63(c). If the effectiveness of a hedge with a
         forward or futures contract is assessed based
         on changes in fair value attributable to
         changes in spot prices, the change in the fair
         value of the contract related to the changes in
         the difference between the spot price and the
         forward or futures price would be excluded
         from the assessment of hedge effectiveness.

3-52
         CASE 3 - Firm Commitment Hedged with
                   Forward Contract

  •    On 9/30/2001, GlobalTechCo, a U.S. company issues a
       purchase order to a foreign supplier for equipment to
       be delivered and paid for at 3/31/2002. The terms of
       the agreement meet the criteria for a firm
       commitment.
  •    The price is denominated in the foreign currency—
       FC10,000,000.
  •    The company simultaneously enters into a forward-
       exchange contract, which matures 3/31/2002, in order
       to receive FC10,000,000 and pay U.S. $6,600,000.
3-53
       CASE 3 - Firm Commitment Hedged with
                 Forward Contract

                               Forward Rates
                    Spot Rates for 3/31/2002

   9/30/2001       FC1 = $0.65   FC1 = $0.66

   12/31/2001      FC1 = $0.67   FC1 = $0.69

   3/31/2002       FC1 = $0.69   FC1 = $0.69


3-54
          CASE 3 - Firm Commitment Hedged with
                    Forward Contract
       The entity documents the following:
         – Effectiveness will be measured by (a) comparing
            the change in the fair value of the forward
            contract attributable to changes in spot rates
            with (b) the changes in the fair value of the firm
            commitment attributable to changes in the spot
            rates
         – The spot-forward difference will be excluded
            from the assessment of effectiveness and
            recorded through earnings

3-55
        CASE 3 - Firm Commitment Hedged with
                  Forward Contract

       The following demonstrates the journal entries to
       record this hedge under Statement 133:

       At 9/30/2001, no entry is recorded under
       Statement 133 because a cash payment is not
       made and the contract has a zero value.




3-56
        CASE 3 - Firm Commitment Hedged with
                  Forward Contract
   Entries recorded at 12/31/2001
          Forward contract               295,567
                Earnings                                295,567
   To record the forward contract fair value (present value at a 6%
   discount rate of ((.69 – .66) x FC10 million); includes both
   effective portion of hedge and ineffectiveness due to changes in
   the forward rate.

          Earnings                       197,044
                Firm commitment                         197,044
   To record the change in the fair value of the foreign-currency
   component of the firm commitment attributable to the change in
   spot rates ((.65 – .67) x FC10 million), discounted at 6%.
3-57
       CASE 3 - Firm Commitment Hedged with
                 Forward Contract
   Entries recorded at 3/31/2002
   Forward contract            4,433
      Earnings                           4,433
   To record time value change as there was no change in the
   forward rate (assumption for illustrative purposes only).

   Earnings                 202,956
       Firm commitment                 202,956
   To record the change in the fair value of the foreign-currency
   component of the firm commitment attributable to the change in
   spot rates ((.65 – .69) x FC10 million) – 197,044

3-58
         CASE 3 - Firm Commitment Hedged with
                   Forward Contract

3/31/2002 (continued)

       Cash                300,000
          Forward contract                300,000
To record cash receipt upon maturity of forward contract
       Equipment           6,500,000
       Firm commitment       400,000
          Cash                          6,900,000
To record purchase of equipment

3-59
        CASE 4 – Example 7 from Appendix B of
                 FASB Statement 133


   • Designation and Discontinuance of a
       Cash Flow of the Forecasted Purchase
       of Inventory




3-60

				
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